Back Derivatives Strategy

Why VIX Tail Hedges Remain a “Must Own” and a New Brazil (EWZ) Upside Idea Following Breakout Against SPX

Published on January 25, 2026

Jeff Jacobson

Although the equity indices were relatively flat last week, there remained a lot of volatility in other areas of the market. The US$ index (DXY) dropped sharply to a 3-month low, which also likely contributed to the huge gains we saw in Silver (+15%), Gold (+9%) and Platinum (18%) to name a few. Even though volatility (VIX) was only up small for the week, we got a glimpse early in the week of what can happen to vol on any equity weakness, as VIX spiked by ~ 25% on the initial Greenland news. Even though we saw it move back lower once the situation was diffused, it should be a reminder of how fragile the markets can be and perhaps how one-sided positioning remains? As of last Tuesday, the net short positioning in VIX futures remains very high and it continues to be a reason why I absolutely believe VIX calls and/or wide call spreads for Feb 18^th expiration should be considered for macro tail hedges. I wrote about the net short positioning in VIX futures a few weeks back (here), and the action in the market last week only reinforces my belief that we could be due for a sustainable move higher in volatility (for a multitude of reasons). In just the 2-days when the VIX spiked this week, the Feb 18^th $25 calls I had suggested buying DOUBLED from ~ $0.80 to $1.60. When vol is this low, and positioning is still offsides, it doesn’t take much to be able to monetize a relatively small move in volatility.

US Dollar Index (DXY) with a large decline last week (post Davos) and a decided break below the September uptrend

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Silver futures continue their massive rally as they closed above $100 to end the week

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Net short positioning in VIX futures remains VERY one-sided

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As we head into a new week of trading we are facing another possible Government shutdown by the end of the month, a possible intervention in the Yen, new Canada tariff threats and we will start to get earnings announcements from some of the largest companies. Against this backdrop, VIX futures in Feb moved back to their recent lows ~ 18 and most of the main equity indexes are either at, or just below their all-time highs. With the action we continue to see in the forex markets, as well as the commodity space, it just seems inevitable that equity vol (VIX) is likely to move higher from these levels. Assuming we don’t see too big of a move in vol as markets open on Monday, I would absolutely look to establish/add VIX upside structures for Feb 18^th expiration as a macro tail hedge. Please reach out to me to discuss specific VIX trades after we open Monday morning.

VIX futures for February spiked on the Greenland news and then moved back to their support lows ~ 18 to end the week

Time to add more Brazil (EWZ) upside trades

Back in June I published a note (here) suggesting to buy longer-dated Brazil (EWZ) calls based on the bullish view that 22V’s Jordi Visser had on that market. Since that note was released, EWZ has gained ~40%, while the SPX is up less than 17%. In addition, the Jan $30 calls I suggested buying for a bit over $1 were up ~ 200% on their Jan 16^th expiration. Even though EWZ has performed extremely well, Jordi continues to believe there remains considerably more upside to that market. You can see his comments on Brazil in his latest weekly video (here). The weaker US$, and a much higher concentration/weighting in the sectors Jordi favors most (materials and energy) should continue to give a relative bid to EWZ as the broadening-out trade turns global. I had already been on this theme with my suggestion to buy EEM Feb calls to start the year (here), and with Brazil starting to breakout against the SPX I think it’s time to add new/additional upside exposure via longer-dated options once again.

EWZ with a breakout to a multi-year high last week

EWZ/SPY relative spread breaking above the longer-term downtrend

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When looking at EWZ implied volatility, it has moved up from ~ 24 to 28 on the longer-dated upside calls since June. While I preferred owning calls outright back in June (especially since EWZ was considerably lower), I believe owning upside call spreads makes a bit more sense at this time. Not only is vol higher, but we have already seen a large rally in that market. Lastly, upside call skew favors the call spread buy as the 10-delta September calls now trade ~ 2 vol points above where the 30-delta September calls trade.

Trade:
Buy EWZ September 42/50 call spread for ~ $1.30 (EWZ 36.59 Fri close ref)

Trade Details:

Buying the September (8-month) upside call spread in EWZ to position for additional upside thru 2026
Brazil remains a favored market for Jordi Visser, and he continues to see considerable upside from here given exposure to materials and energy (key components to the AI trade)
EWZ itself just broke out to a multi-year high and the EWZ/SPY relative spread also broke above a long-term downtrend
Weaker US$ should also continue to give a bid to emerging markets
Call spread starts ~ 15% higher, and has a max payout of over 5x to 1 on the limited-risk structure
There was a large buyer of the Sept 45/50 call spread on Friday (60k spreads) that traded for ~ .50. I prefer the wider call spread that starts a bit lower and has more delta to start
Please reach out to me or the 22V sales team for updated pricing and execution capabilities

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